All-time highs meet political risk in Trump's America

• The S&P 500 fell 3% for the week, breaking below 6,800, as Trump threatened tariffs on eight countries including the UK over Greenland dispute, though markets rallied after he ruled out military force
• Trump's interventionist policies include capping credit card interest rates at 10%, directing $200 billion in mortgage-backed securities purchases, and taking a government stake in Intel
• Kevin Warsh is now the frontrunner to replace Fed Chair Jerome Powell in May, potentially leading to significant changes at the Fed including reduced quantitative easing and increased market volatility

Market Summary: All-Time Highs Meet Political Risk in Trump's America

Key Market Movements

The S&P 500 reached near-record levels last week, approaching 7,000 before retreating 3% to break below 6,800. The VIX index declined to levels indicating investor complacency during the rally. The Russell 2000 small-cap index hit record highs as investors rotated from tech growth stocks into value and domestic equities.

Political Risk Factors

President Trump's geopolitical actions triggered market volatility, including threats of US takeover of Greenland and tariff threats against eight countries, including the UK, for defying his demands. Markets rallied after Trump ruled out military action on Greenland at Davos, though he still seeks immediate negotiations with Denmark for ownership.

Policy Interventions

Trump's market interventions include:

• Government stake in Intel
• Proposed 10% cap on credit card interest rates for one year
• Plan for Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities to reduce housing costs
• Repeated criticism of Federal Reserve Chair Jerome Powell

Federal Reserve Implications

Kevin Warsh has emerged as frontrunner to replace Powell when his term ends in May. Warsh opposes quantitative easing and favors increased Fed transparency but less intervention during market disruptions, suggesting heightened market volatility ahead.

Market Outlook

The analyst warns investors should prepare for increased volatility in coming years—favorable for traders but challenging for long-term investors. The combination of all-time highs and elevated political uncertainty creates a complex risk environment.